<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   
    SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 1996

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE         
    SECURITIES EXCHANGE ACT OF 1934

For the transition period from ................. to ..................

Commission File Number  0-2901

                            KRUG INTERNATIONAL CORP.
             (Exact name of registrant as specified in its charter)

              Ohio                                      31-0621189
            -------                                     ---------- 
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification No.)

1290 Hercules Drive   Suite 120 Houston, Texas             77058
----------------------------------------------             -----
(Address of principal executive offices)                 (Zip Code)

                  (281)212-1233
                  -------------
(Registrant's telephone number including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filings requirements for the past 90 days.

Yes   X           No
    -----            -----


The number of Common Shares, without par value. outstanding as of 
November 5, 1996 was 5,151,206.



<PAGE>   2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (dollars in thousands)

                                                  September 30,   March 31,
                                                     1996             1996
                                                    ------           ------
                            ASSETS
                            ------
Current Assets:
  Cash                                             $    5,045        $    439
  Receivables                                          17,488          18,309
  Inventories (Note C)                                  7,340           8,635
  Prepaid expenses                                        959             627
                                                   ----------        --------
     Total Current Assets                              30,832          28,010
                                                   ----------        --------
Property, Plant and Equipment                          16,272          15,701
  Less accumulated depreciation                         6,973           6,444
                                                   ----------        --------
                                                        9,299           9,257
                                                   ----------        --------
Pension Asset                                           2,354           2,316
Deferred Tax Assets                                     1,995           2,508
Other Assets                                              371             280
                                                   ----------        --------
                                                   $   44,851        $ 42,371
                                                   ==========       =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Bank borrowings                                  $                 $     31
  Accounts payable                                      9,253           8,205
  Accrued expenses                                      5,870           5,534
  Income taxes                                            223             218
  Net current liabilities of discontinued
     operations (Note E)                                  474             500
  Current maturities of long-term debt                  1,169           1,166
                                                   ----------        --------
      Total Current Liabilities                        16,989          15,654
                                                   ----------        --------
Long-Term Debt                                         11,620          11,982
Net Non-Current Liabilities of Discontinued
  Operations (Note E)                                                     205
                                                   ----------        --------
Total Liabilities                                      28,609          27,841
                                                   ----------        --------
Shareholders' Equity:
  Common Shares, no par value:
    issued and outstanding, 5,151,206 at
    September 30, 1996 and 5,076,950 at
    March 31, 1996                                      2,576           2,538
  Additional paid in capital                            4,399           4,224
  Retained earnings                                     9,003           7,870
  Foreign currency translation adjustment                 264            (102)
                                                   ----------        --------
      Total Shareholders' Equity                       16,242          14,530
                                                   ----------        --------
Total Liabilities and Shareholders' Equity         $   44,851        $ 42,371
                                                   ==========        ========

                 See notes to consolidated financial statements


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                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                        (in thousands, except per share)

                                                    THREE MONTHS ENDED
                                                        September 30,
                                              ------------------------------
                                                 1996                  1995
                                              ------------------------------
Revenues                                     $   26,669           $   23,904

Costs and Expenses:
  Costs, including product
      development                                23,250               20,790
  Selling and administrative                      2,298                2,192
  Restructuring charge (Note B)                     800
  Interest expense                                  231                  272
  Other (income) expense                             (7)                   4
                                             ----------           ----------
                                                 26,572               23,258
                                             ----------           ----------
Earnings before Income Taxes                         97                  646

Income Taxes (Note D)                                13                  230
                                             ----------           ----------
Net Earnings                                 $       84           $      416
                                             ==========           ==========

Net Earnings Per Share                       $     0.02           $     0.08
                                             ==========           ==========

Average Common and Common Equivalent
  Shares Outstanding                              5,210                5,051
                                             ==========           ==========

                 See notes to consolidated financial statements


<PAGE>   4


                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
                        (in thousands, except per share)

                                                      SIX MONTHS ENDED
                                                        September 30,
                                              ------------------------------
                                                 1996                  1995
                                              ------------------------------
Revenues                                      $  53,176            $  48,929

Costs and Expenses:
  Costs, including product
      development                                45,692               42,576
  Selling and administrative                      4,566                4,549
  Restructuring charge (Note B)                     800
  Interest expense                                  521                  569
  Other (income) expense                            (71)                  (7)
                                             ----------           ----------
                                                 51,508               47,687
                                             ----------           ----------
Earnings before Income Taxes                      1,668                1,242

Income Taxes (Note D)                               535                  437
                                             ----------           ----------
Net Earnings                                  $   1,133            $     805
                                             ==========           ==========

Net Earnings Per Share                        $    0.22            $    0.16
                                             ==========           ==========

Average Common and Common Equivalent
  Shares Outstanding                              5,192                5,045
                                             ==========           ==========

                 See notes to consolidated financial statements


<PAGE>   5


                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                           increase (decrease) in cash
<TABLE>
<CAPTION>

                                                               SIX MONTHS ENDED
                                                                 September 30,
                                                        ------------------------------
                                                           1996                  1995
                                                        ------------------------------
<S>                                                     <C>                  <C>
Net Cash Provided by Operating
             Activities                                 $   5,246            $   3,348
                                                        ---------            --------- 
Cash Flows From Investing Activities:

     Expenditures for property, plant and equipment          (249)                (130)
     Proceeds from sale of assets                               5               -
                                                        ---------            --------- 
           Net Cash Used in Investing Activities             (244)                (130)
                                                        ---------            --------- 
Cash  Flows From Financing Activities:

     Bank borrowings - net                                    (31)              (1,082)
     Payments on long-term debt                              (642)                (495)
     Sale of Common Shares under Options                      212                   92
                                                        ---------            --------- 
          Net Cash Used in Financing Activities              (461)              (1,485)
                                                        ---------            --------- 
          Effect of Exchange Rate Changes on Cash              65                  (6)
                                                        ---------            --------- 
Net Increase in Cash                                        4,606                1,727

Cash at Beginning of Period                                   439                  363
                                                        ---------            --------- 
Cash at End of Period                                   $   5,045            $   2,090
                                                        =========            =========

Cash Paid For:

     Income Taxes                                       $       0            $     314
                                                        =========            =========
     Interest                                           $     658            $     586
                                                        =========            =========

Non-Cash Investing and Financing Activities-
     Capital leases                                     $     132            $     197
                                                        =========            =========
</TABLE>
                 See notes to consolidated financial statements


<PAGE>   6





                    KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        QUARTER ENDED SEPTEMBER 30, 1996
                             (dollars in thousands)


Note A -- Basis of Presentation

                  The Condensed Consolidated Financial Statements for the three
and six months ended September 30, 1996 are unaudited and have been prepared in
accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission and, as such, do not include all information required by generally
accepted accounting principles. They should be read in conjunction with the
audited financial statements included in the Corporation's Annual Report on Form
10-K filed on July 1, 1996. In the opinion of management, the Condensed
Consolidated Financial Statements include all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position
and results of operations for the periods indicated.

Note B -- Restructuring Charge

                  In July 1996, the Corporation announced that it would close
its executive offices in Dayton, Ohio in September 1996 and consolidate its
headquarters activities with its primary operations facility adjacent to the
NASA Johnson Space Center in Houston, Texas. A restructuring charge of $800 was
recognized during the quarter ended September 30, 1996 for this office
consolidation. The charge consists primarily of costs related to severance for
former employees and rent and other costs related to the vacated offices in
Dayton, Ohio. The consolidation was completed October 1, 1996.

Note C -- Inventories

                                  September 30,              March 31,
                                       1996                     1996
                                  -------------              ---------
     Finished goods                $     5,139                $ 6,352
     Work-in-process                       907                  1,101
     Raw materials and supplies          1,294                  1,182
                                  -------------              ---------
                                   $     7,340                $ 8,635
                                  =============              =========


Note D -- Income Taxes

     The provision (benefit) for income taxes is composed of the following:

    Three Months Ended September 30,       1996              1995
    --------------------------------     ---------         --------
    Domestic                              $ (237)           $ 119
    Foreign                                  250              111
                                         ---------         --------
                                          $   13            $ 230
                                         =========         ========

<PAGE>   7


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Note D -- Income Taxes (continued)

    Six Months Ended September 30,         1996              1995
    ------------------------------      ---------         ---------
    Domestic                             $ (172)           $ 135
    Foreign                                 707              302
                                        ---------         ---------
                                         $  535            $ 437
                                        =========         =========

Note E -- Discontinued Operations

                  In prior years, the Corporation discontinued the operations
and disposed of substantially all of the net assets of its Industrial Segment.
Remaining obligations related to this Segment include a leased property in
Knoxville, Tennessee, a leased property in Toronto, Canada, and product
liability claims related to products sold prior to the disposal of the
Industrial Segment.


<PAGE>   8





ITEM 2.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS



 Results of Operations

The following discussion contains certain forward-looking statements that are
based upon assumptions believed by management to be relevant to an understanding
of the Corporation's business, including anticipated levels of U.S. government
defense and aerospace spending, timing, volume and pricing of customers orders
and industry-specific economic outlooks. Forward-looking statements herein are
subject to risks and uncertainties that could cause actual results to differ
materially from those outlined in the forward-looking statements.

Revenues of $26.7 million for the quarter ended September 30, 1996 were $2.8
million, or 7%, higher than the comparable quarter of fiscal 1996. The U.K.
Leisure Marine Segment revenue increased by $0.4 million, or 13%, from the same
period in fiscal 1996. Increased sales of inboard engine products was the main
cause of the revenue increase. Chandlery, Sea Doo personal watercraft and parts
and accessories sales also increased from the prior year. The U.K. Housewares
Segment sales volume increased by $0.8 million, or 11%, which was partially
offset by $0.1 million unfavorable effect of foreign currency translation during
the second quarter of fiscal 1997 as compared to the prior year comparable
quarter. Sales of child safety gates in the quarter ended September 30, 1996
increased substantially from the prior year because the product was being
introduced during the comparable quarter last year. Sales of ladders and ironing
tables also increased from the prior year. Revenues of the U.S. Life Sciences
and Engineering Segment for the quarter ended September 30, 1996 increased by
$1.7 million, or 14%, from the second quarter of fiscal 1996. Increased material
and subcontract services purchased for the U.S. Air Force resulted in the
increased second quarter fiscal 1997 revenues.

Revenues for the first half of fiscal 1997 increased by $4.2 million to $53.2
million, or 9%, from $48.9 million in the first half of fiscal 1996. The Leisure
Marine Segment revenue increased by $1.9 million, or 13%, from the same period
in fiscal 1996. A $2.4 million increase in sales volume for the segment was
offset by $0.5 million of unfavorable foreign currency translation. All Leisure
Marine product groups had higher sales volume over the prior year. The
Housewares Segment revenue increased by $0.5 million or 4%, from the comparable
period of fiscal 1996. A $1.0 million increase in sales volume was offset by
$0.5 million of unfavorable foreign currency translation. All product groups in
the Housewares Segment had higher or the same sales volume as compared to the
prior year. The Life Sciences and Engineering Segment revenue increased by $1.8
million, or 8% in the first half of fiscal 1997 as compared to fiscal 1996. The
increase in revenue was substantially due to the increased material purchases
and subcontract services provided to the U.S. Air Force in the current year.

Life Sciences and Engineering order backlog at September 30, 1996 was $42.6
million compared with $60.4 million at March 31, 1996 and $68.0 million at
September 30, 1995. In August 1996, the Life Sciences and Engineering Segment 
was awarded a new contract for equipment calibration at the Wright Laboratory,
Wright-Patterson Air Force Base. The contract consists of a base period
beginning August 1, 1996 plus four one-year options through September 30, 2000.
The contract value with the options is approximately $5.0 million. In February
1996, KRUG Life Sciences Inc. (KLSI) signed a nine month extension to its
current Medical Operations and Research Support Contract with NASA's Johnson
Space Center. With this extension, the contract will end on November 30, 1996.
In addition, three one month options were included with the nine month
extension. KLSI has been notified that the first one month option will be
exercised by NASA which will extend the contract to December 31, 1996. The
option will add approximately $25.0 million to the order backlog. The original
support contract was a $136 million five-year contract. It has grown to $170
million as a result of added materials purchased and contract extensions. This
contract represents approximately one-third of the Corporation's revenues and a


<PAGE>   9
corresponding percentage of its net earnings. It is anticipated that the work
performed under the current NASA contract will be split into three separate new
contracts - Medical Operations, Biotechnology and Flight Hardware. NASA has
issued Requests for Proposals to KLSI for sole-source follow-on contracts for
the Biotechnology and Flight Hardware work. The Flight Hardware contract is
expected to begin December 1, 1996. KLSI has submitted its competitive bid for
the Medical Operations contract covering five years of future service. The
revenue generated from all three new contracts, if awarded, is expected to
approximate the Corporation's current contract volume with NASA. However, there
is no assurance the Corporation will, in fact, receive all of these contracts
and the level of profitability is uncertain until the final contracts are
negotiated.

The gross profit margin (Revenue minus Cost, including product development) for
the quarter ended September 30, 1996 decreased to 12.8% from 13.0% for the same
quarter of the previous fiscal year. The decrease is due to a decrease in the
Life Sciences and Engineering Segment margin in the current fiscal year. In the
second quarter of fiscal 1996, $0.2 million of contract close-out profits were
realized for a contract on which work was completed several years ago. This
decrease was somewhat offset by an increased Housewares Segment margin in the
current year. The margin increased to 11.7% from 6.4% last year due to higher
product selling prices and decreased raw material prices. The Leisure Marine
Segment margin was unchanged from the second quarter of last year. For the six
months ended September 30, 1996, the gross profit margin increased to 14.1%
compared to 13.0% for the same period of the previous fiscal year. The increase
is due to increased margin in the Housewares Segment which has increased to
11.7% from 5.2% last year due to increased selling prices and lower raw material
costs. The Leisure Marine Segment margin was unchanged for the six months of
fiscal 1997 as compared to the prior year. The six month fiscal 1997 Life
Sciences and Engineering Segment margin decreased from the prior year due to the
non-recurrence of the contract close-out profits and lower fees from material
purchases for the NASA contract extension.

Selling and administrative expenses for the second quarter of fiscal 1997
increased by $0.1 million as compared to the same period of the prior fiscal
year, but remained unchanged for the six months ended September 30, 1996. The
increase during the second quarter was due to increased selling expense by the
Leisure Marine Segment as a result of increased sales volume.

The Corporation announced in July the closing of its executive office in Dayton,
Ohio and consolidating its headquarters with its primary operations facility
adjacent to the NASA Johnson Space Center in Houston, Texas. A pre-tax charge of
$0.8 million was recognized in the second quarter of fiscal 1997 for this office
consolidation. The charge consisted primarily of costs related to severance for
former employees and rent and other costs related to the vacated office in
Dayton, Ohio. The office consolidation was completed October 1, 1996.

Interest expense for the six months and three months ended September 30, 1996
decreased by 8% and 15%, respectively, compared to the prior years comparable
periods due to lower debt levels in both the U.S. and U.K.

Net earnings were $ 0.08 million for the second quarter of fiscal 1997 compared
to $0.42 million for the comparable period in fiscal 1996. The pre-tax
restructuring charge of $0.8 million for the headquarters consolidation caused
the decreased earnings. Excluding the restructuring charge, net earnings for the
second quarter would have been $0.6 million and would have exceeded by $0.2
million, or 47%, the second quarter of fiscal 1996. Net earnings for the first
six months of fiscal 1997 were $1.1 million compared to $0.8 million for the
comparable period in fiscal 1996. Excluding the restructuring charge, increased
Leisure Marine and Housewares Segments revenues and increased Housewares Segment
gross margin resulted in the increased earnings for both the six and three
months periods. Excluding the restructuring charge, six months net earnings
increased $0.9 million or 106%, from the prior year.


<PAGE>   10

Discontinued Operations

The adequacy of the provision for losses related to the discontinued Industrial
Segment were reviewed by the Corporation during the first six months of fiscal
1997 and no changes were deemed appropriate.

Liquidity and Capital Resources

Under the Corporation's revolving credit facility with a U.S. business credit
corporation, the Corporation had a loan outstanding of $4.7 million at September
30, 1996. Availability under the revolving credit facility is based upon the
amount of billed and unbilled U.S. accounts receivable and is limited to a
maximum of $10.0 million. The credit facility expires March 31, 2000. At
September 30, 1996, the Corporation had a $1.8 million mortgage outstanding on
its Dayton, Ohio real property. The mortgage was provided by five U.S. banks and
matures on March 31, 1998. The Corporation's U.K. subsidiaries at September 30,
1996 had two term loans outstanding totaling $5.6 million. The loans require
quarterly principal payments and mature in fiscal 2005. In addition, the
Corporation has an unused line of credit of $3.9 million available at September
30, 1996 for its U.K. subsidiaries. The Corporation believes it has adequate
financing in both the U.S. and U.K. to support its current level of operations.

The Corporation generated cash of $5.2 million from operating activities in the
first six months of fiscal 1997. The cash generation is a result of decreased
accounts receivable in the U.S. and U.K., decreased inventory in the U.K. and
increased accounts payable in the U.K.

On November 1, 1996, the Corporation announced that the U.K. Housewares Segment
subsidiary, Beldray Limited acquired Hago Products Limited, the largest
manufacturer of child safety gates and fireguards in the United Kingdom. Beldray
completed the acquisition with internally available funds. The purchase price
was approximately $1.7 million.




<PAGE>   11

PART II.  OTHER INFORMATION

         Item 6. Exhibits and Reports on Form 8-K
                  (A) Exhibits 27 - Financial Data Schedule








<PAGE>   12


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, KRUG
International Corp. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

                                       KRUG International Corp.


                                       By:  /s/   Robert M. Ellis
                                          ----------------------------------
                                                  Robert M. Ellis
                                             Principal Accounting Officer





Dated :  November 13, 1996


<PAGE>   13


                                EXHIBIT INDEX


                        27 -- Financial Data Schedule